WAGE DETERMINATION IN

THE IRISH ECONOMY: AN

ECONOMIST’S PERSPECTIVE
ON THE BENCHMARKING
REPORT
FRANCES RUANE AND RONAN LYONS*

1.
T he publication of the report of the Public Sector Benchmarking Body
(PSBB) in June 2002 may mark a milestone in the development of wage
Introduction determination policy in Ireland. Its recommendations, if implemented, are
set to have a major impact on the public finances and on the patterns of
pay remuneration of public servants of all grades.1 Historically, the process
of national wage determination in Ireland has not been the preserve of
economists, but rather the domain of the senior representatives of social
partnership. Their approaches seem to be primarily dominated by
industrial relations (IR) factors (and memories of decades of earlier
centrally-negotiated agreements) rather than by any labour market issues
associated with, say, structural changes in the Irish and/or developments
in the global economy. This is not to say that economists have ignored
issues of national pay determination but rather that their role in the
process has been confined for the most part to examining ex post whether
we can afford what is agreed and what its likely effects will be on
employment and the public finances.2
In terms of national pay determination, the recent benchmarking
exercise in Ireland is quite different. The body was invited to make
recommendations for public sector pay, which were “grounded in a
coherent and broadly based comparison with jobs and pay rates across the
country” (Public Sector Benchmarking Body Report, p. 13). The tone of
the document’s terms of reference (TOR) implies that its

* We are very grateful for assistance and advice from Francis Byrne, Bill Carroll, Ciaran
Connolly, Brendan Duffy, Michael Errity, Eithne FitzGerald, John
Fitz Gerald, Carmel Keane, Aebhric McGibney, Brian Meenan and Mary Murphy in the
preparation of this paper. The views expressed in this paper are those of the authors and are
not the responsibility of those who provided data or advice.
1Because of the obvious vertical relativities, it seems likely that the PSBB’s recommendations
will impact at least indirectly on the payment systems for higher civil servants also as covered
by the Review Body on Higher Remuneration in the Public Sector.
2More recently, the issue is typically formulated in terms of whether the pay agreements are
consistent with global competitiveness of the private sector and the funds available for public
sector pay.
1
 recommendations were to be based on very thorough research into
sectoral and occupational pay rates across the economy, having regard to
four main considerations: to recruit and retain public sector staff, to modernise
public sector work practices, to ensure equity between public and private workers, and to
underpin Ireland’s competitiveness (paraphrased from Public Sector
Benchmarking Body (PSBB) Report, p.14). In principle, the idea of such
an exercise should appeal to economists as evidence of the introduction of
some economic rationality into national wage agreements. However,
careful reading of the report is more likely to leave the average economist
in a state of more, rather than less, disquiet!
This paper examines the reasons used to argue that we needed to
carry out an economy-wide review of public sector wage structures in the
first instance. In particular, in Section 2 it asks: is there evidence that
private sector wages have increased much faster than public sector wages
in recent years? Is there evidence of recruitment and retention difficulties
in the public sector, which we would expect if there had been such a
widening in relative earnings? Section 3 it critiques the approach adopted
by the PSBB, both in terms of the limitations of its methodology and its
deliberate decision not to explain what underlies its recommendations.
Section 4 it examines how the benchmarking proposals will reinforce
relative salary changes in favour of senior administrative posts within the
public sector over the past twenty years changes, despite the fact that there
is no evidence of retention problems for these grades and without
addressing the issue that parallel positions in the private sector at these
levels all have performance related pay elements. Section 5 notes the
failure of the report to take competitiveness issues into account, despite
the fact that Ireland’s relative position in terms of productivity and labour
costs has declined sharply in recent years. Even relative pay rates in the
public sector across OECD countries, where performance related pay is
being introduced, are not included in the analysis. The paper concludes
with a summary of the weaknesses in the PSBB’s use of the benchmarking
exercise, and its failure to specify the implementation of a timetabled
modernisation process as part of its proposals.

HAVE PUBLIC SECTOR EARNINGS RISEN MORE SLOWLY

2. THAN PRIVATE SECTOR EARNINGS?
Evidence of
Wage One of the main justifications for the benchmarking exercise was the
Differentials perception that public sector earnings had decreased, relative to private
between the sector earnings, during the period of the late 1990s, when GDP and GDP
Public and per capita were increasing rapidly. The argument was one of horizontal
Private Sectors equity: the perception existed amongst the public sector unions that
workers doing similar jobs in the private and public sectors had
experienced a change in relative wealth (as measured by income), and
consequently public sector employees were being “underpaid”. This
perception was taken into the negotiations of the Programme for
Prosperity and Fairness (PPF), Ireland’s most recent social partnership
deal, and the result was the commissioning of the PSBB to undertake a
substantial review of public sector pay, with reference to private sector
pay. While the intention was that the results of such an exercise would be
taken into account in the next round of national pay negotiations, it was
agreed as part of the revised PPF that 25 per cent of what was
2
recommended would be paid as part of the present round and backdated
to 2001.
Because the perception that the public sector had fallen behind was
so widely held, the PSBB appeared not to believe that there was any need
to publish supporting analysis or basic statistics in its final report to detail
the foundation for the claim of a growth in public-private wage
differentials. This is somewhat surprising, as one would expect that such
research would be essential to validating the awards the PSBB was
expected to give. The report does draw selectively on its interim Research
Update (published in September 2001) for some context-setting arguments.
Using CSO statistics, the interim report shows that over the period
1988 to 2000, public servants remained on average better paid than
industry, distribution, business services and construction employees, and
steadily improved their position relative to employees in banking,
insurance and building societies, earning 3 per cent more on average than
such workers by 2000. Perhaps not surprisingly, these data are not
reproduced in the final report, although the interim report does caution
against the use of these data, as they do not take account of differences
between workforces in these sectors in terms of factors such as age and
education. The interim report also points to the faster growth rates of
earnings in certain sections of the private sector in recent years.

Figure 1: Earnings Indices and Inflation, 1988-2002

220

200

180

160

140

120

100
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

CPI Executive Salaries Public Service Industrial

Source: CPI data: CSO (2002); Tansey (1998); Executive salaries data: Tansey (1998); IMI
(2001); Public Service data: CSO (2002); Industrial sector data: Tansey (1998); CSO
(2002). For further discussion of these data, see Tansey (1998).

Figure 1 shows changes in the Consumer Price Index (CPI)

compared with growth in the earnings of three different groups, namely
public servants, executives and industrial workers, with 1988 the base of
the index. As can be seen, the growth in average earnings of all categories
has been faster than the CPI since 1988; also, since tax burdens have fallen
over the same period, it is clear that real post-tax incomes have increased
even faster. Increases in public sector earnings have matched those of
executive salaries and exceeded those of average industrial earnings over
this period. These data confirm what the PSBB’s Research Update Report
had found, namely considerable differences in year-on-year changes in
3
relative earnings and no significant gap emerged in the earnings growth
rates between the public servants, managers and industrial workers over
the 1990s.3
In effect these aggregate data provide no strong prima facie case for a
major exercise to adjust the horizontal relationships between public and
private sector workers. However, as the Research Update points out, this
does not mean that there is no case at all to be made regarding sector-
relative earnings. It may be the case that, correcting for differences in skill,
education and other factors, public servants are being paid less. In this
case, there may be a basis, on equity grounds, for further consideration of
the merits of awarding additional pay increases to the public sector, over
and above what is being paid currently in the price sector – but this
remains to be demonstrated.
The standard method used in economics to establish whether there
are such unexplained earnings differentials between two groups or sectors
is to estimate earning equations based on panel data on workers in both
groups/sectors. These methodologies are long established, having been
developed to deal with equity issues arising in the context of gender and
ethnicity considerations, as well as public and private sector comparisons.4
They require data on the annual earnings (detailing gross and net salaries,
plus bonus payments, overtime and other allowances) for employees of
both groups/sectors as well as the hours worked by each worker, in order to
determine average hourly earnings, as the dependent variable. The
independent variables require data on the characteristics of both the jobs and
those who hold these jobs: type and responsibilities of job, educational
attainment required and actual attainment level, gender, family status,
age/labour market experience and location of employment. Equations are
estimated for these samples, from which it is then possible to compute
how similarly qualified persons would be treated, if they were to hold a
similar job in the other sector.5
The next stage involves the grouping of workers together based upon
the characteristics of their jobs, in order to identify comparable sectors. As
Bender and Elliott (1999) point out, for some jobs, such as defence forces,
teachers and nurses, there may be very little to compare between the
public and private sectors. However, researchers have generally found
large enough occupational groups to compare between sectors; for
example, “manual workers, clerks, intermediate workers, highly qualified
employees and management” or “clerical, secretarial, managerial,
construction and drivers”.
Several major international case studies that adopt this approach are
reviewed in Elliott, Lucifora and Meurs (1999). In France, research at
INSEE that controls for human capital, family and job variables
establishes that manual workers were better paid in the public than in the

3 The index for construction rose faster than for the public sector but this is not surprising
given the huge pressure on that sector over the past five years and the longer average hours
worked by those in the sector.
4 See, for example, Ruane and Dobson (1990) the determination of salaries differentials in the
Irish academic labour market in the mid 1980s.
5 It transpires that it is very difficulty to account econometrically for the effect of “devoted
human capital”, e.g., training undergone for a period of time that equates to a sunk cost
invested in aspiring to a certain kind of job which is not of value for other kinds of jobs. This
is consistent with the difficulties for senior staff in many countries in moving between the
public and private sectors.
4
private sector. For management level workers, the opposite was the case,
with the age/earnings profile being relatively flatter in the public sector.
In Spain, the remuneration effect is found to account for higher
hourly earnings of up to 40 per cent for all employees (up to 63 per cent
for women) in the public sector. In the case of Germany, Dustmann and
van Soest (1999) find that men are better paid in the private sector than in
the public, while women, especially the better educated, are paid relatively
more in the public sector.6 In the UK, Bender and Elliott find that there
was a steady increase in private sector pay in the period 1980-95, but did
not reach any conclusions about public/private sector wage differentials.
If this approach had been taken in the Irish case, it might have been
possible to establish in a systematic way the nature of the differences, if
any, between public and private sector pay. This could then have been
developed to establish in what manner are public sector pay rates needed
to change to deal with equity and market-related issues. It would have been
an expensive research project, given that such data are not readily available.
However, this approach was not adopted and the use of economics failed
to feature in the report other than in a context-setting manner – instead a
Human Resource Management (HRM) approach to wage differentials was
adopted, as discussed in Section 3 below.

IS THERE EVIDENCE OF RECRUITMENT AND RETENTION

PROBLEMS IN THE IRISH PUBLIC SERVICE?
The PSBB report cites recruitment and retention as an issue in its
deliberations. If public sector salaries moved out of line with private sector
salaries during the late 1990s, then one would have expected the public
sector to face serious recruitment and retention issues. However, Figure 2
shows a sustained increase in public sector employment throughout the
growth period, an increase projected to continue into 2003. While there
may be some issues with labour quality not evident from these data, there
is no empirical evidence to support the view that the quality of labour
recruited by the public sector was worse than that in the private sector.
Figure 2: Public Sector Employment Indices, 1980-2003

160

150

140

130

120

110

100

90

80
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Public Service Public Sector Health Education Civil Service

Source: Department of Finance.

6 They note that ‘the negotiated results of large private sector unions are taken as the
benchmark for the public sector’ (emphasis added).
5
 What about retention problems? Information from the Department
of Finance suggests that the anecdotal evidence purporting to relate to
retention and recruitment difficulties in the Civil Service is misleading and
that no such difficulties were evident in 1999/2000 and that the situation
in the current slower-growth environment is, not surprisingly, even less
difficult for retention. Some limited data on retention in the Civil Service
are available, although they were not used by the PSBB. They show that
staff turnover in 2000 increased to 8.5 per cent, from 6.4 per cent in 1999.
At first glance, these may seem to suggest that there might be a problem,
and this is perhaps the source of the misinformation on civil service
retention rates. However, these turnover data include individuals who are
moving between departments, who are retiring or moving to different
contracts (e.g. job sharing) and as such do not capture the concept of
retention at all. Table A1 in the Appendix shows that approximately one-
third of turnover in 2000 was due to resignations, one-third to staff
redeployment (promotions, transfers, secondments) and the remaining
third due to changed participation by individuals (retirements, job sharing
and career breaks).
Only the data on resignations from the public sector are relevant.
Goldsmith Fitzgerald’s Civil Service Commission Staff Retention Survey of
October 1999 (taken before the PPSB started its work) investigated the
resignations from the civil service throughout the late 1990s. They find,
based on a survey of several departments, a general upward trend in
resignations overall, but these are driven particularly by higher resignation
rates for clerical (up to 2.5 per cent) and specialist (up to 1.8 per cent)
staff. For example, the rates for grades from Assistant Principal Officer
(APO) and above (amongst whom one might expect to find the “best
and brightest”) are extremely low, never rising above 0.5 per cent. More
recent Department of Finance data presented in Table 1 confirm these
results. While the overall resignation rate rose between 1999 and 2000, it
is less than 3 per cent and the rate of departure for the supposedly
sunnier private sector pastures is less than 1.5 per cent at the peak of a
private sector boom. (Table A2 in the Appendix summarises the stated
reasons for their resignations given by those who resigned from the civil
service in 2000.)
Table 1: Civil Service Figures on Turnover, Resignations and
Flight to the Private Sector
Year Turnover Resignations to Private Sector

Number % Number % Number %

1999 1995 6.4 608 1.95 165 0.53
2000 2624 8.5 890 2.88 417 1.35
Source: Department of Finance.

But these data continue to overstate the problem since most of the
resignations are at clerical level, involving mostly young people who are at
a “job shopping” stage. Table 2 breaks down the 417 departures to the
private sector by the grade from which the employee departed. It shows
that clerical officers account for almost 60 per cent of departures, with
workers in all grades above CO only comprising 14.8 per cent. Coupled
with the increasing size of the civil service, as has been discussed in
Section 2, these data suggest that if there is an attractive differential in

6
public-private pay and conditions, very few experienced civil servants seem
to know about it!

Table 2: Breakdown of Resignations to Private Sector, 2000

Numbers Percentage
Total 417 100
AP above 5 1.2
HEO, AO 20 4.8
EO, SO 35 8.4
CO 248 59.5
Specialist 48 11.5
Note: Specialist denotes: medical, legal and “other professional”.
Source: Department of Finance.

On the basis of these data it is difficult to argue that there was any
serious justification for initiating a benchmarking exercise on the basis of
public/private sector comparisons in the first instance. There may, of
course, have been reasons to wish to review earnings structures within the
public sector. In other words, while it is perfectly possible that there may
be no argument for generally raising public relative to private sector
salaries, there may be very good arguments for relative salary changes
internally within the public sector. Indeed, there is very little reason to
believe a priori that the general pattern of vertical relativities set within the
public sector in the 1950s, which were linked explicitly to
contemporaneous private sector relativities, are appropriate today. At that
time, Ireland was a highly protected economy, with little competition in a
private sector that produced relatively low skill-intensive products.
Compared with a highly open economy, with manufacturing dominated by
multinationals and with services becoming more highly skilled and
increasingly subject to competitive pressures, the world of the 1950s is
very different.
In fact, one of the few ways in which this world is still similar to the
1950s is in the way in which much of the public sector labour market
operates – as an asymmetrically segmented sector, with entry (in most
instances) possible only at the lowest grades for much of its employment,
and a reward structure that reflects individual effort in only a very limited
way. Despite a decade of SMI, PMDS, Good Government, etc., it would
appear that little has really changed on the ground.7 Notwithstanding the
obvious changes in vertical relativities within the public sector that would
inevitably result from its methodology, the PPBS report is explicit that its
method is concerned with horizontal and not vertical relativities and
adopts an approach that completely ignores them. We now turn to look at
this approach.

7 See, for example, John Murray (2001).

7
 3.
T he PSBB adopted a Human Resource Management (HRM) approach
to differentials, which involved comparing a range of similar jobs between
The HRM the public and private sectors, entirely independently of market conditions
Approach to in either of these different job markets. In effect the approach is centred
Public/Private on horizontal relativities, with the key focus being on the determination of
Sector Wage what are similar jobs.8 It has several difficulties, even taken in its own terms.
Differentials It represents comparisons at a point in time, and that point, in the case of
the Irish benchmarking exercise, represented a unique period (full
employment) in the past fifty years. Thus, it compared public and private
sectors earnings in a most atypical period, and one can only hazard a guess
but that the relativities taken at the end of 2002 would be somewhat
different.9 This criticism is all the more serious, given that implicit in the
report of the PSBB is the idea that its recommendations, and more
importantly the new relativities they suggest, are what will prevail well into
the future.
Second, it totally neglects the inevitable changes in vertical relativities
that result and of the broad economic impact of any recommendations
made. Third, no attempt is made in the report to explain or justify such
changes in relativities and ask what they mean for career structures within
the public sector and indeed for the internal labour market within the
public sector. On the contrary, there almost seems to be a strong desire
within the whole industrial relations (IR) framework that it is best that no
one knows exactly how the recommendations were reached. Eithne
Fitzgerald reports on her experience in seeking information from the
Department of Finance under the Freedom of Information (FOI) Act on
(a) why the Benchmarking Body was excluded from designation under the
Act, and (b) details of background research conducted by the body. Fitz
Gerald (2002) concludes:
These papers are illuminating. A senior official argues “it would be undesirable
in an industrial relations and pay determination context that any party should
seek to look behind the published reports, reasonings and findings of the
bodies”. “Any party” clearly includes the Department of Finance itself. In a
further memo, the official goes on to argue that it would be inappropriate for the
records of the Body to revert to the Department at any subsequent date (where
as records held by the Department they would be open to disclosure under FOI).
In other words, the Department does not want to know, either now or in the
future, the reasoning behind proposals to spend €1,000m a year in additional
public money.
The absence of any discussion of what lies behind the
recommendations flies in the face of the research-based approach which
this €3million exercise appeared to be attempting, i.e., to evaluate the vast
body of material obtained from an in-depth comparison of the two
sectors. Those involved in the process should have realised that unless a
blanket public sector increase of fixed percentage were granted, increases
in public sector wages were going to inevitably lead to changes in relative
wages within the public sector. It is untenable that public sector employees
would only compare themselves to “private sector counterparts”,
particularly when the basis for comparison with such counterparts is not

8 See O’Leary 2002.

9 This is especially so since the methodology is supposed to take account of differences in
employment conditions.
8
 explained in the Report.10 We now turn to look at how the benchmarking
exercise impacted on relativities.

4.
B enchmarking was designed to eliminate the gap between the earnings
profiles of public and private sectors, on the assumption that such a gap
Benchmarking existed. In Ireland, as elsewhere, the range of private sector salaries has
and Relative increased, as markets have become more competitive and salary payments
Earnings are increasingly performance related, especially at middle and senior
management levels. Given this, a system that seeks to mirror the private
sector would inevitably involve a relative shift in favour of senior
compared with junior posts, even if there were no sectoral differentials.
Thus, we find in the report local authority senior engineers being awarded
an increase of 10.5 per cent, while assistant engineers are only awarded 4.3
per cent, and Assistant Principal Officers (APO) get 13.8 per cent while
Administrative Officers (AO) get 10-10.2 per cent. This pattern reinforces
and amplifies the incremental changes in the relative scales of civil service
grades since the late 1970s. Table 3 below traces the increase in maximum
pay levels of various Civil Service grades over the period 1978-2002.11 As
such, the increases do nothing to address the issue of retention in those
few parts of the public service that seemed to be experiencing some
modest retention difficulties, namely clerical officers and specialists.
Table 3. Nominal and Real Increases in Maximum Pay Levels in the
Civil Service, 1978 - 2002

Maximum Pay Levels (€) Nominal Real

Job Title 1978 2002 Increase Increase
Secretary General 18,057 157,413 871.76 219.31
Asst. Secretary 14,344 106,441 742.06 186.68
Principal Officer 11,919 76,393 640.93 161.24
Assistant Principal 9,771 58,054 594.15 149.47
Higher Exec. Officer 8,741 42,934 491.18 123.57
Executive Officer 7,130 35,303 495.13 124.56
Clerical Officer 5,339 27,732 519.42 130.67
Note: The adjustment for inflation is based on the CPI figure.
Source: Department of Finance.

What effect do the proposed recommended relative changes have,

assuming that they are implemented? It could be argued that they create an
incentive for better performance, to the extent that promotion is seen to
depend on performance. However, this argument is difficult to sustain
since the current reward system is almost entirely time- rather than
performance-related. It does nothing to deal with the motivation issue that
is noted as a reference point by the PSBB (along with recruitment and
retention). To the extent that the PSBB believed that public sector salaries
should be increased, and that motivation was an issue, there would have
been considerable merit in increasing the length of scales rather than up-

10 The report documents the efforts made at comprehensiveness in coverage, though absence
of interviews with private sector employees may have understated the greater qualitative
differences than may have been apparent from the survey questionnaire data used.
11 This scale does not include the highest levels of seniority in either sector, as the PSBB
Report does not cover those levels covered by the Buckley Reports.
9
rating all scales. This would have allowed for more flexibility and less
costly implementation and it would have better mirrored the reward
system in the private sector, which the interim Research Update
acknowledges as being much more responsive to performance.
The report itself is replete with details of the rates of increase
proposed for different groups, ranging from 4 per cent to 25 per cent.
Since it is not possible to look at all grades, we consider a sample of
current and proposed earnings for some graduate entry grades: a mainline
civil servant who enters at Administrative Officer (AO) level and is
promoted onto Assistant Principle (APO) and may subsequently reach
Principle Officer (PO) level; an engineer who enters at Grade 3 level and
rises through Grade 2 to Grade 1 level; a teacher who stays a mainstream
teacher without any post of responsibility; and a staff nurse who rises to
Clinical Nurse Manager III level.
Figure 4 shows that all graduates currently start off at salaries
between €20,000 and €30,000. The gap between top and bottom widens to
€34,000 after 25 years service. The civil servant who reaches the APO
grade (the absolute minimum grade that a graduate entering at AO would
expect to achieve and most would expect to reach PO) earns more in
his/her first year than a basic teacher/nurse would after 25 years of
service, and the PO earns significantly more than the engineer. Both
comparisons seem to point to an approach that gives preferential
treatment to generalists rather than specialists in the public service, even
though the difficulties of retaining specialists seems to be a far greater
problem.

10
 Figure 4: Sample of Current Public Sector Salary Scales

90

80

70

Pay (€ ,000s)
60

50

40

30

20
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Yrs Service

Civil (APO) Civil (PO) Engineer Teacher Nurse

Figure 5: PSBB Proposed Sample of Public Sector Salary

Scales

90

80

70
Pay (€ ,000s)

60

50

40

30

20
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Yrs Service

Civil (PO) Engineer Teacher Nurse Civil (APO)

Figure 5 shows the post-benchmarking situation, with the top-bottom

gap widening to about €45,000. The evidence above showed that within
the Civil Service, the greater retention problems, such as they were, at
graduate levels were within the specialist grades. Yet in terms of
recommendations we find that engineers, typical of the specialist grades
did worse than the AO/APO/PO grades in terms of salary increases.
Similarly, one might expect that the shortage of nurses, which is clearly
documented and recognised in our immigration policy, would be reflected
in their treatment by the PSBB. Yet here again we find that nurses at the
lower levels are awarded an increase of 8 per cent, compared with a
minimum increase in the graduate entry grades in the general civil service,
where there is no evidence of retention problems, of 10 per cent.12 It is
difficult to understand just what drove such a proposed increase for the
civil service graduate entry grades, unless labour market conditions were

12 Further down the hierarchy again, Clerical Officers, where there was the greatest evidence
of retention problems, were awarded 8.5 per cent, less still.
11
being entirely ignored, or some unspecified IR factors influenced the views
of the PSBB.
In considering the PSBB report, we are forced to conclude that the
PSBB deliberately chose to ignore labour market conditions and specific
performance incentives in making its recommendations. Its evasion of any
discussion on the introduction of performance-related pay (PRP), by now
an integral component in a growing number of remuneration systems in
public sectors throughout the OECD,13 is all the more remarkable,
especially as the report cites “motivation” as an issue. This is particularly
so for the upper-middle levels in the public sector, whose counterparts in
the private sector have on average a larger part of their annual earnings
that varies and based on performance than any other group of workers.
In exploring reasons why people have left the Civil Service,
Goldsmith Fitzgerald’s Retention Survey finds that lack of recognition and of
reward for personal effort are two of the main factors. Two-fifths of all
staff place reward and recognition as a major aspiration. Ironically, this
could be seen as implying that retention could be improved by PRP
systems rather than by undifferentiated pay awards. This leaves one asking
the obvious question of motivation noted in the Report: what are the
incentives for people at junior and middle levels?14 As mentioned above,
the PSBB gives no consideration to increasing incentives by lengthening
the pay scales rather than shifting them, with a promotional system that
allows for acceleration based on ability/effort. The HRM approach
adopted places emphasis entirely on jobs and not on performance, and the
underlying model is one of a bureaucracy, where over time one moves up
into jobs requiring increased administrative responsibility. Thus teachers,
whose basic job specification does not change, get small increments but
have no chance of advancement unless they take up a post of
responsibility, which is effectively another job. The total rejection by
teachers’ unions of performance-related pay works against those teachers
who wish to make an additional commitment to their careers, as they
simply cannot earn more by working harder! They simply get the same
reward each year independently of the quality of what they do, and face a
pay cap after 25 years. This system is one entirely bereft of economic
incentives.

13 See OECD (1993,1994).

14 The example of what has happened in Singapore, reported in Colclough (1997) may
provide some relevant challenges for Irish policy makers. During the boom years of the early
1980s, there was concern that there was a flight from the public sector to the private sector.
Public sector salaries rose to increase retention, until recession hit in 1986. A new system was
designed to allow enough flexibility to reward good performance. Public sector remuneration
would have four components, with only one component of four, namely the base salary,
being fixed. The other three components, National Wage Council increases, the payment of a
13th month’s salary, and a year-end variable bonus (in line with Singaporean economic
growth) all allow flexibility of pay linked to performance. The author notes the potential free-
rider problem with the latter incentive, because individual performance makes an infinitesimal
contribution to economic growth. He favours its replacement with a bonus in line with
group, team, branch, department or managerial output in relation to goals in order to
incentivise and reward optimum performance.
12
 Ieconomic
nternational competitiveness is regarded as being crucial in Ireland’s
5. growth, and hence to improved standard of living, in the
The Role of economy. Competitiveness is a mix of many factors, but in particular, for a
International given exchange rate, productivity in relation to labour costs largely
Competitiveness determines international competitiveness. Ireland’s effective exchange rate
fell over the period 1995 to 2000, which, coupled with increasing
productivity, helped to maintain Ireland’s competitiveness at a time when
real wages were rising quickly. More recently, Ireland’s effective exchange
rate has risen, making exports more expensive on non-euro markets.
Therefore, productivity and labour costs are even more critical to Ireland’s
continuing economic growth. In the 2001 Annual Competitiveness Report
(ACR), Ireland is ranked 11th of 16 developed economies in terms of
productivity and labour costs. This is down from 7th in 2000, reflecting the
recent rapid acceleration in wages. Now, more than ever, Ireland’s
competitiveness needs to have top priority on policymakers’ agenda.
The ACR goes on to say that “the efficiency and effectiveness of
government, both in the levying of taxation and in the provision of public
goods, are fundamental aspects of national competitiveness” (2001, p.45).
The PSBB report cites competitiveness as a relevant consideration in
undertaking its review. Despite this, it manifestly fails to relate the pay
increases to any market conditions, either local or global. For example, no
mention is made anywhere of comparisons with public service wages
elsewhere in the OECD. This omission is perhaps not surprising when one
considers that the interim Research Update, which devoted considerable
space to examining trends in other OECD countries, found little
international evidence of public sector “underpayment”; indeed often quite
the opposite was found.
Even in the context of the HRM approach adopted, the opportunity
to take account of the international dimension was overlooked. A possible
system for international comparison would be to look at the spectra of
earnings for a range of public sector jobs across relevant economies. While
it would not make sense to compare directly the earnings of, say, teachers
or police officers in Ireland with their European counterparts, due to
differences in tax burdens, house prices and costs of living, education
systems and so forth, it would be relevant to examine the spread of
average earnings in the Irish public sector with those of countries against
which we benchmark ourselves in the ACR. These comparisons could
provide evidence to support or question the changes in relativities
discussed above and link to the PSBB’s understanding of the complexity
of the public sector labour market. Given the array of consultants
employed, many of whom are part of international consortia, such
comparisons could, and indeed should, have been made to give value and
substance to the exercise. While conditions in public services everywhere
are not identical, in many instances they are more similar across countries
than they are between public and private sectors within individual
countries.

13
 6.
B enchmarking, in the business context, is traditionally associated with
checking one’s performance against an organisational or industry standard,
Conclusions with a view to seeing how one can improve what one does.15 Its
application in this instance to matters of pay, rather than performance, has
perhaps served to confuse the subsequent research and has led to
recommendations that do little to address the rigidities and problems
facing the public sector labour market in Ireland. Its application to pay
relativities at a time when the labour market generally in Ireland was at full
employment is particularly unfortunate, as it has set expectations that do
not take account of the volatility of the private compared with the public
sector, in terms of employment and conditions. This is particularly evident
when we recall Figure 1, which showed very dramatically the independence
of public sector employment from the present global recession. Indeed the
recent performance of income tax receipts seems also to reflect the
changed income circumstances of those in the private sector.
In our review of the Irish data, we failed to find any strong prima facie
case for a significant differential in private and public sector wages. Such
evidence would only have been possible, if the PSBB had taken the
standard econometric approaches adopted elsewhere, which distinguish
between jobs and job holders, rather than opting for the narrower HRM
approach, based on evaluating each job in micro detail, without any regard
to market conditions. Given the €3 million spent on the report, it would
have been worthwhile ascertaining just what might have been done for the
same funding, using an economic rather than a HRM approach.
The PSBB fails to justify the different levels given to various grades
of public servants. While recruitment and retention are mentioned in the
list of reasons for having benchmarking, no data were presented on the
supposed difficulties in recruitment and retention in the public service
generally that would explain why one grade would get a larger increase
than another. The data, such as are available, show no retention or
recruitment difficulties.16 The awards recommended involve a relative shift
away from junior grades to senior grades, and while market forces may
validate these in the case of the Civil Service, no evidence is presented to
justify that view.
The Report also fails to address the issue of modernisation and
reform in the public sector, and the related notion of Performance Related
Pay (PRP), a concept not necessarily unpopular with civil servants
themselves, but clearly so with their unions. In our view, the exercise
represented a rare opportunity to institute an urgently required timetabled
reform of the public sector, an opportunity that has been badly missed as
we have come through a decade of minimal public sector restructuring.
(See Murray, 2001). Even in its banal discussion of modernisation and
reform, the PSBB report was disappointing. In this regard, it does not
seem to serve the social partnership process well.
Throughout the OECD, increased pay flexibility, with variable
components of remuneration, are becoming integral parts of public sector

15 The Oxford English Dictionary, for example, defines benchmarking as a process through
which a business evaluates its own operations by detailed comparison with those of another
business, in order to establish best practice and improve performance. Cf. OED website
http//:dictionary.oed.com.
16 The “anecdotal scare” has had the effect of encouraging the development of systems
within the civil service to monitor staff turnover, which has not been done previously in any
systematic manner.
14
pay. In contrast, the PSBB report failed to take these developments into
account and simply stressed that the awards it made could not be used to
justify pay claims from the private sector. No words of leadership or
challenge are to be found regarding PRP or the opening up of middle and
senior posts in the public service to outside applicants.17 The Body did not
even take the opportunity to lengthen rather than uniformly increase
scales, which would have increased the scope for facilitating
modernisation. If this were just part of the usual IR machinery, one would
not be surprised. In this instance, however, the exercise purported to be
much more, with those involved supposedly committed to contributing to
pay determination policy in the national interest and not in the interests of
any particular segment of social partnership. This exercise serves to
suggest that the role of economics in wage determination policy in Ireland
will continue to be negligible, with public sector pay continuing to bear
little relationship to market forces.
The present state of the world economy, the deteriorating state of our
public finances and the apparent failure of large amounts of public
expenditure (both current and capital) to generate real benefits for
taxpayers, put the demands of implementing this report in perspective.
Instituting the types of reform that can increase productivity of the public
service is a task that will prove all the more difficult in the light of the large
expansion in public sector employment set out in Figure 2. In our view, no
one should be allowed back to the negotiation table without a full
understanding of the present economic realities and no further wage
increases should be paid to the public sector without prior implementation
of much-needed reform.

17 Ironically, if the present segmentation of the labour market into the public and private
sectors did not exist, the need to monitor public/private wage differences would disappear.

15
 REFERENCES

BENDER, K. and R. ELLIOTT, 1999. “Relative Earnings in the UK Public Sector: The Impact of
Pay Reform on Pay Structure” in R. Elliott, C. Lucifora and D. Meurs (eds.), Public Sector Pay
Determination in the European Union, London: Macmillan Press Ltd., pp. 285-339.
COLCLOUGH, C. (ed.), 1997. Public Sector Pay and Adjustment: Lessons from Five Countries, London:
Routledge.
DUSTMANN, C. and A. VAN SOEST, 1999. “Wages and Hours Worked in the Private and Public
Sectors in Germany” in R. Elliott, C. Lucifora, and D. Meurs (eds.), Public Sector Pay Determination
in the European Union, London: Macmillan Press Ltd., pp. 114-137.
ELLIOTT, R., C. LUCIFORA, and D. MEURS (eds.), 1999. Public Sector Pay Determination in the
European Union, London: Macmillan Press Ltd.
FITZGERALD, E., 2002. “Social Rights and Funding”, Paper delivered to Irish Social Policy
Association Conference, Dublin City University Sept. 13, 2002.
FORFÁS, 2001. Annual Competitiveness Report 2001, Dublin.
GOLDSMITH FITZGERALD, 1999. Civil Service Commission Staff Retention Survey, Dublin.
GUILLOTIN, Y. and D. MEURS, 1999. “Wage Heterogeneity in the French Public Sector: Some
First Insights” in R. Elliott, C. Lucifora, and D. Meurs (eds.). Public Sector Pay Determination in the
European Union, London: Macmillan Press Ltd., pp. 70-113.
IRISH MANAGEMENT INSTITUTE, 2001. Executive Salaries in Ireland. Dublin.
MURRAY, J., “Reflections on the SMI”, Paper delivered to a seminar at the Policy Institute TCD in
November 2001 and published on its Web site at http://www.policyinstitute.tcd.ie/publications.html
OECD, 1993. Pay Flexibility in the Public Sector, Paris: OECD/PUMA.
OECD, 1994. Public Service Pay Determination and Pay Systems in OECD Countries, Paris:
OECD/PUMA.
O’LEARY, J., 2002. “Benchmarking the Benchmarkers,” ESRI Quarterly Economic Commentary, this
issue.
PUBLIC SECTOR BENCHMARKING BODY, 2002. Report of the Public Sector Benchmarking Body,
Dublin: Stationery Office, Pn 11727.
PUBLIC SECTOR BENCHMARKING BODY, 2001. “Research Update”, Mimeo, September
2001.
REVIEW BODY ON HIGHER REMUNERATION IN THE PUBLIC SECTOR, 2001. Buckley
Report, Dublin: Stationery Office.
RUANE, F., and E. DOBSON, 1990. “Academic Salary Differentials − Some Evidence from an
Irish Survey”, The Economic and Social Review, Vol. 21, No. 2., 1990, pp. 209-226.
TANSEY, P., 1998. Ireland at Work: Economic Growth and the Labour Market, 1987-1997, Dublin: Oak
Tree Press.
APPENDIX
Breakdown of Turnover, Departures and Resignations from Civil
Service Jobs

Table A1: Turnover in Civil Service Jobs, 2000

Numbers %
Total 2,624 100
Promotion 309 11.8
Transfer 411 15.7
Secondment 169 6.4
Job-sharing 115 4.4
Retirement 288 11.0
Career Break 392 14.9
Resignations 890 33.9
Other 50 1.9

Table A2: Stated Reasons for Resignations from the Civil Service,
2000

Number %
890 100
Other Job - Public 93 10.4
Other Job - Private 417 46.9
Education 19 2.1
Family/Child Care/Domestic 30 3.4
Emigration 13 1.5
Low Pay 108 12.1
Conditions/Commuting/Cost of Living 18 2.0
Other (job-related) 10 1.1
Other (not job-related) 11 1.2
Unknown 171 19.2

"Other (job-related)" includes: lack of "quality work", promotion and relocation

opportunities, and could not transfer.
"Other (not job-related)" includes: pre-empt dismissal, felt harassed, not suited to position,
“old dog, new tricks”, and self-employment.
Source: Department of Finance.

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